The Nuances of NNN Leases

Today, we are joined by Simon Jonna to talk about the nuances of NNN leases. He is an accomplished industry leader, broker and author throughout his career. Simon’s received National Achievement Award honors, in addition to recognition in the Wall Street Journal, the commercial real estate Hall of Fame and the Business 30 in the thirties. 

 

 

[00:01] – [05:52] How It Started Out

• Simon shares how he started out as a stock boy in a grocery store and transitioned into a stock broker
• Simon talks about his journey from stock broker to real estate broker and how it was a play by play process
• How he is now an investment sales broker and oversees a national team

 

[05:52] – [13:06] Net Lease Opportunities in the Current Market

• How the Jonah Group focuses on the net lease market, and how they are able to exploit opportunities in this market
• How the blending and extending of leases is one instance of an opportunity that the Jonah Group has been successful in seizing
• How understanding the market gave the Jonah Group an advantage on arbitrage

 

 

[13:07] – [17:10] Tips from Real Estate Deal Junkie on How to Survive the Current Market

• Due to the “what if factor” of what can occur in the future, investors’ hunger for real estate has shifted in 2022
• How investors are quite cautious,even though there are still opportunities for acquisitions
• Why investors will be interested in upside plays, bite-sized buys, and foreclosures

 

[17:11] – [21:01] Closing Segment

• Reach out to Simon!
• Links Below
• Final Words

 

 

Tweetable Quotes

 

“This is why people love real estate, the great arbitrage. You have seven-cap cvs and before you close or. Post closing one or the other, you are able to take this deal to market,and manifest it.” – Simon Jonna

 

“The deal junkies will always look to trade.” – Simon Jonna

 

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Connect with Simon! LinkedIn: Simon Jonna. Website: JonnaGroup.com. Email: simon@jonnagroup.com 

Book Recommendations: Diary of a Deal Maker

 

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Email me → sam@brickeninvestmentgroup.com

 

 

Want to read the full show notes of the episode? Check it out below:

 

[00:00:00] Simon Jonna: A lot of firms, a lot of the big houses in the real estate world, commercial real estate, not, not, not necessarily residential. They like to preach, uh, specialties in, in areas of specialization that that’s a good thing. I think you’re able to build a brand more expedient that way, and I think you’re able to emblematize yourself as a practitioner, Hey, I’m a retail expert, or, Hey, I’m a multi-family expert, or, Hey, I happen to be a hospitality expert. 

 

[00:00:39] Sam Wilson: Simon Jonas, an accomplished industry leader, broker and author throughout his career. Simon’s received National Achievement Award honors, in addition to recognition in the Wall Street Journal, the commercial real estate Hall of Fame and de Business 30 in the thirties. Simon, welcome to the show. 

 

[00:00:51] Simon Jonna: Thank you. Thanks for having me. 

 

[00:00:55] Sam Wilson: Absolutely. The pleasure is mine, Simon, there are three questions I ask every guest who comes from the show in 90 seconds or less. You know, tell me where did you start, where are you now, and how did you get?

 

 [00:01:03] Simon Jonna: I started as we talked on this earlier, Sam, as a stock boy in a grocery store.

 

And that was my upbringing very early on sub teams. And then I transited into a stock broker, so from stock board to stock broker. And that was my onset. And, as of today, I’m an investment sales broker. I oversee a national team known as the DON Group, flagged by Colliers inter. And what was the third tier to that question?

 

[00:01:33] Sam Wilson: Where’d you start? I don’t even remember my own question here. Simon, where’d you start? How’d you get there? There we go. 

 

[00:01:37] Simon Jonna: How’d I get there? I’d like to be able to say it wasn’t see or happenstance or luck, but there’s always a little bit of that and, uh, I sort of wanna account for, uh, I touched on my upbringing.My father, Harry Jonah. He instilled

 

in me characteristics that, uh, perpetuate within me to this. As far as entrepreneurship, as far as work ethic and for what it’s worth as far as integrity when dealing interpersonally one on one with others on the . Transactional front.

 

[00:02:07] Sam Wilson: Yeah, absolutely. Now, tell me about from Stock Broker to real estate broker journey.

 

[00:02:58] Simon Jonna: Correct. So early on, I believe I was 17, 18 years old. I was enamored.Just, you know, the Wall Street cinematic in terms of boiler room. Sure. Uh, in terms of Wall Street one, later, Wall Street two, Glen Gary Quinn Ross. That was like sort of the motif for young guys like me. Fast life, the good life salesmanship, you know, the ultimate reward in itself. Right? And not just from a monetary standpoint, but from a developmental standpoint. So I said Salesmanship is likely my calling. And I thought to myself that maybe stock brokerage for starters was a way to go about it.

 

[00:02:47] Sam Wilson: That’s really interesting. So, but did, did I hear in there the, did you tell me how you went from stock broker to to real estate broker? Did you tell that jump? 

 

[00:03:07] Simon Jonna: Yeah. So, it’s a little bit of a play by play, but just to give you the synopsis, snapshot started as a stock broker, cold calling early. It was an independent firm. I’ve gotta be able to tell you, it mirrored that of a chat shop, but that wasn’t, that wasn’t a bad thing. It wasn’t a blue chip, it wasn’t the glitz and glamor and, uh, it was more hardcore, more hard line. And,, nobody was nice to me. And I think I was forced to earn my stripes and then, or I knew it within the stock brokerage world. I transitioned to the glitz and glamor. The, uh, the Blue Dip, it was known as, uh, ubs or rather, Payne Weber at the time, which is present day. Ubs. I was more of a peddler, for another senior stock broker. And that was its own learning curve. It wasn’t a bad thing. Um, it was just a little bit of a different matriculation in terms of the business back there, I was a cold caller Here. I’m more of an assistant stock broker. And then transitioning, I wanted to dabble into commodities. Hmm. Worked with an industry billionaire. Uh, I don’t wanna tell you where he’s at today. Um, I think he’s off the grid , but, but, uh, his, his style of salesman. Really enveloped an acumen and aptitude within me that took it to new heights. And, uh, I really appreciate him looking back. He was a good mentor. He got caught up in industry squabble and, uh, we, we, we ended up parting ways. The firm sat down shop. Before I knew it, I migrated. I was born and raised in San Diego to Michigan and get that all the time on the calls. Naturally, how are you gonna move from San Diego to metro? And of course over time, that made me a little bit of a defender of Detroit because Detroit’s not what everybody sees from the outside looking in. There’s really, really deep pockets out here. Oakland County was number three, circa 2006, within the entire nation. It’s still maybe top 20. It’s a, there’s beautiful communities, but my migrating had to do with my family. And were very familiar. I should say, As a community, as a culture. I’m Cal and American, if you’re familiar, Sam, and, uh, my parents wanted to move over there. My mom had family. My dad has a bigger family, but oddly enough, he wanted to stay in San Diego, America’s finest city. Uh, that’s where his heart is, I think as of to this day. But, um, in Metro Detroit, I transitioned into investment real estate and everything I gathered along the way, the good, bad end and, and ugly, uh, from stock brokerage, really, really paid dividends, you know, just touching down into the real estate now.

 

[00:05:51] Sam Wilson: Tell me, what are you guys focused on now in your brokerage firm? I know you guys have won a lot of awards. You’ve placed very high, if not at the top, many times there in the, uh, in the brand. So tell me what you guys are focused on now if there is such a thing. 

 

[00:06:05] Simon Jonna: Thank you for that. We’re very focused. I talk to you sort of my pre loop going in, going live. We talked about a lot of firms, a lot of the big houses in the real estate world, commercial real estate, not, not, not necessarily residential. They like to preach, uh, specialties in, in areas of specialization that that’s a good thing. I think you’re able to build a brand more expedient that way, and I think you’re able to emblematic yourself as a practitioner, Hey, I’m a retail expert, or, Hey, I’m a multi-family expert, or, Hey, I happen to be a hospitality expert. That was good and sometimes not so good for me because I grew up as a little bit of a dirt dog, and we talked about that. I was born and brought into the business. I was bird-dogging in yellow pages way back in the day. Don’t ask me how old I am in that Senate. I was able to spread my wings as of when we started our own entity, the Jonah Group. And to touch on your question, our honed in focus has always been net least from day one. It still is. We operate within 50 states. We transact every product type imaginable under the net lease umbrella. And that’s all inclusive of not just retail and not just the multitude of segments within retail with our drug stores and outer parts and big boxes. But office has a net lease sector, industrial has a net lease sector, and medical has a net lease sector. So that’s our forte, the net lease. And that’s coupled. I don’t know if, um, you’ve looked into it yourself, Sam, but that’s very much coupled with multifamily. Right. We consider ourselves multifamily through and through, and, um, as of the trailing 12 months, we transacted about 500 plus million. And that’s also not just conventional multifamily, I’d say the lion’s here is garden style multifamily, but we’ve also done assisted living. We’ve done independent living, we’ve done senior housing. We’ve done hospitality, multi-family convergence, right. A mixed use and the urban core. We, we’ve, we’ve done just that quite a bit of mixed, mixed use with that multi-family residential component.

 

[00:08:15] Sam Wilson: Wow. That’s a lot of moving pieces. And, and if I’m, if I’m hearing you correctly, it is the hustle that you like the most and not necessarily being tied to one asset. 

 

[00:08:28]Simon Jonna: We are tied to the hustle. You contextualized it better than I ever could. 

 

[00:08:34] Sam Wilson: I love it. No, and that’s great. That’s great. But, but you did say, you know, you did say that one of the things that you guys heavily focus on there is the net lease, uh, opportunities. So let’s talk about that for a minute. What, what are in the market today? We’re recording this. What is today, November 15th, 2022. Uh, so as of today, and I know that this isn’t relevant, maybe a year from now, but what do you see right now as opportunity and risk in the net lease environment? 

 

[00:09:01] Simon Jonna: Well, I see opportunistic avenues within net lease, uh, that sometimes tend to be multidimensional, that sometimes not everybody. There, there’s been, uh, trending mechanisms, such as, let me just touch on a few. I know that we can really delve deep into this. I, I, I give forms on this type of stuff and I’ve written a book on this type of stuff. So, uh, but just to be able to touch on it, blend and extend, for instance, right? You look at a multifamily view and you say to yourself, okay, got a Walmart here. I’ve got Home Depot, I’ve got a c. There’s only two years in term. What do I do? They want a discounted cat. I’m looking at a, call it a two year term on a cvs, just off the cuff, depending on the time period. Of course, let’s just round it off to a seven cat. So I see a seven cat market speaks to me at a five and half in terms of the delta for a stabilized cvs. I’m putting my money into this dirt. Do I have conviction in the dirt for starters? Do I have conviction in the tenant? The tenant shows very well. The tenants publicly traded, the tenants all over the headlines, all over the ticker, all over the feeds. CVS is time and tested, right? CVS is very fungible. They’re a drug store, and by trade, they like to situate themselves on signalize corners, hard corners with streetlights, right? They’re free standards. So the backfill makes it that much more amenable for other users. You happen to have a driver, so lots of drivers in terms of it. Right? But because it’s a two year deal, what’s the probability of renewal? That’s my exposure. Okay. That’s my concern as an investor, is my money, okay? That I’m deploying into this asset is they’re gonna go by the wayside when CBS decides not to renew. Right? So the blend and extend. Is, and granted, I mean, there’s investors out there that take it to another level. They’re that much more crafty than the others, right? But lemme just touch on like a mid, mid tier sort of, , schematic for conducting a blend extend. You go in, you tie up the cvs, assuming you might have a tentacle or two, or the broker that you happen to be working with, with the corpor. You’re able to get some type of nudge. This is unofficial. I, I can’t speak to this, you know, on, on the surface, but if you’re able to get a nudge, you have a leading invitation that the store’s a performer, right? Then maybe you can effectuate some type of commitment, either a pre-commitment in the escrow period, or maybe post escrow, which is a little bit riskier. Now the guy who has enough traction, the guy who has enough lineage with the. And having done this time and again, he likely best case scenario can get the lease inked renewed with a 10 year renewal of vis-a-vis and addendum or amendment in escrow, which is ideal. That’s like, wow, that’s the blend and extends at its finest. So assuming you’re able to do that, what do you have there? This is why people love real estate. , the great arbitrage. You have a seven cap cvs and before you close or. Post closing one or the other, you are able to take this deal to market, okay? And manifest it. Present it as a five cat. So there you go. 250 basis point arbitrage because you understand the lay of the land and , you have a , leading in the cake in that CBS will stabilize. Maybe foreseeably in advance. 

 

[00:12:33] Sam Wilson: Right, right. And that takes a lot of experience I would imagine, inside of that particular asset class.

 

[00:12:40] Simon Jonna: It does. It does. And I’m just attempting to depict the scenario on this podcast, but, but again, if you and I had a cup of coffee, or a beer or a vodka for that matter, we can really touch on the intrinsics. And there’s variables and there’s a host of approaches that you can put into play there with the blended extent.

 

[00:13:02] Sam Wilson: No, I think that’s a great strategy. Tell me a little bit about investor appetite. Has it changed in 2022, and if so, how? 

 

[00:13:11] Simon Jonna: It has, unequivocally, in the form of, call it skepticism. Because of the what if factor, what may be, on the up come, how will the market look, moving forward in the near term, the midterm, the long term. There’s a lot of that. And without quite then the economics play a part. The geopolitical landscape, geopolitical minutia, whatever you wanna call it, plays a. And, uh, the fact that the treasuries have swiped up, , that ties into the interest rates, that ties into yields, that ties into yield, right polls for investors. That ties into returns and that has sort of created a little bit of sidelining of capital. But granted, because there’s been so much forward momentum, so much expansion, so much period of uni uninterruption, aside from. Hey, are these deals recession resistant coming out of 2009? Hey, are these deals, , online resistant coming out of circa 2015? Hey, are these deals, uh, covid resistant coming outta circa 2020? Aside of that, aside from that, rates have remained historically low, right? And so it’s, it’s been very fluid. So because of that, you’re not, The, it, it, it’s not necessarily coming to a screeching hole. There’s still deals being done. There’s still 10 31 exchanges. The deal junks will always look to trade one way or the other. 

 

[00:14:38] Sam Wilson: Right. , that’s about exactly it. The deal junkies will always look to trade. I guess that’s why I’m still in the game, right? I guess. Yes, sir, that’s pretty funny. I like

 

[00:14:49] Simon Jonna: But that’s a bag of honor. You call yourself that.

 

[00:14:52] Sam Wilson: I guess so, well, tell me this, I mean, as it pertains to the investor appetite kind of conversation, does that present unique opportunities for us deal junkies who are still in the game? 

 

[00:15:04] Simon Jonna: It does. Some of these deals, because raids have risen as dramatically as they have, are in the red, uh, relative to cap rate. Mm-hmm. Their cap rates, do they move in lockstep? Uh, theoretically they. But a lot of the ownership these days is private capital. It’s not just Reeds, an institution. So the private capital guy saying to himself, I don’t necessarily have to acquiesce to the open market. What if rates dip again and I’m losing this, this margin.What if it’s not as equitable to sell? What if I sideline myself just like the investors? So there’s a lot of that skittishness. Your question was how can you get in and how creative can you be?

 

[00:15:45] Sam Wilson: No, the question was if people are, if capital is becoming more conservative, if people are not, you know, like I think you put it earlier, the Ford Momentum is slowing slightly. Does that present opportunities for investors who are still in the game today? 

 

[00:10:36] Simon Jonna: It does , so , there’s a few buckets. There’s upside plays. I don’t think, uh, that type of investor looking at an upside play is as rate conscious present day. I think they can always recast and, and refi down the road assuming they stabilize a deal.There’s always bitesize deals, so incrementally their rating pieces don’t mean as much. Right. You can hit a bunch of singles in the enter and wait for the market to stabilize and then of course there will be, my sort of crystal ball tells me my forecast. There will be foreclosures, there will be short sales. To what extent, to what degree? I can’t speak to, but there will be that bucket that investors, especially when they see blood on the streets, especially, you know, when they have the wherewithal, the tentacles, the means to, you know, to bid on those types of deals that that will be at, not, not necessarily at the forefront, but, but that’ll be in play.

 

[00:16:58] Sam Wilson: Yeah. I don’t wanna see that come to the market, but it may very well come to that.

 

[00:17:03] Simon Jonna: When you say you don’t wanna see that come to the market. Let me reverberate this. I’m asking you the question. Why don’t you wanna see that when so many investors do.

 

[00:17:12] Sam Wilson: Just because I know that it causes a lot of people pain, it causes a lot of investors pain. I know personally as an investor that raises private capital, that I would be mortified if that event ever happened. I mean, I, I would be sick beyond sick and I’m not even sure, I’d probably find every way I possibly could ever repay any investor that lost a dollar with me. Cuz it’s just like, I don’t wanna see that happen. So I just probably for a personal, oh, sorry for you feeling. 

 

[00:17:41] Simon Jonna: That’s a great answer, Sam, and, uh, I, I’ve lived it, I’ve lived through the cycles. The business isn’t rewarding no matter what the monetary value is at that point.

 

[00:17:50] Sam Wilson: Right, right. And I will say all of that my caveat to all of that is my intro into real estate was buying foreclosures. So I bought closures for six years, so I can’t really, you know, say that I have that golden of a heart I still bought. It, anyway, we digress here. Simon, this has been a lot of fun. I’ve really enjoyed hearing your story of how you went from stock broker to real estate broker, the, uh, the, just doing the hustle. What’d you call yourself? A dirt dog. I think that’s a great way to put it. And, and really being opportunistic and taking advantage of the things that are right there in front of you and finding a way to, uh, present that opportunity to investors and to, and to, you know, build an awesome company yourself Around it.

You have written a book here recently, and I would love to get a chance to highlight that here on the show. What’s the title of that book and how can our listeners get in touch with it?

 

[00:18:39] Simon Jonna: The title of the book, I’ll hold it up for you, is, diary of a Deal Maker, the Hurdles and the Hustle. I didn’t even know that was the title of it.

 

[00:18:46] Sam Wilson:That’s awesome. Diary of a Deal Maker, the hurdles and the Hustle. How do we find that Simon? 

 

[00:18:52] Simon Jonna: That’s available on Amazon and Kindle. 

 

[00:18:55] Sam Wilson: Amazon and Kindle. That’s fantastic. Certainly appreciate it. Simon. If our listeners wanna get in touch with you or learn more about your firm and the opportunities you guys present, what is the best way to do?

[00:19:06] Simon Jonna: They’re more than welcome to visit the website jonnagroup.com. That’s j o n n a group.com. And they’re more than welcome to reach out to me via email. My primary is Simon, s i m o n, like Simon says, at jonnagroup.com.

 

[00:19:23] Sam Wilson: Simon at jonnagroup.com. Simon, thank you again for coming on the show today. Certainly appreciate it. 

 

[00:19:52] Simon Jonna: Thanks for having me, and you’re a great host. Thank you, Sam.